Did you know that in 2021 a £31 billion merger between the telecommunication giants Virgin Media and O2 occurred? Let's take a look at this case for more information about this merger and how it may impact our lives.
Strategic Analysis
Throughout the explanation, we will be conducting a strategic analysis. The analysis will involve SWOT and financial analysis to conduct an in-depth examination of the merger.
SWOT analysis
The SWOT analysis has two types of elements external and internal.
The internal analysis includes:
Strengths – These are the things the business is good at and has a competitive advantage in. It can be human resources such as employing many talents, strong brand image, consumer loyalty etc.
Weaknesses –These include internal things that the business is lacking, and may be harmful to the organisation. For example, debt, lack of using new technology etc.
The external analysis includes:
Opportunities – Businesses cannot control these factors but they are beneficial for the organisation. These may include new technology, lower production costs abroad etc.
Threats – These include external factors that may be harmful to the organisation. For example, competitors entering the market.
Financial performance analysis
The financial performance analysis involves an income statement that indicates the company's revenues earned and the expenses incurred over a period of time.
On the other hand, a balance sheet also known as the statement of financial positioning shows the assets and liabilities of a company for a specific period.
Additionally, financial ratios are also used to analyze a company's financial performance, they include return on capital employed, net profit margin, gross profit margin and current ratio.
To revise these concepts, take a look at our explanation of financial performance.
About Virgin Media
Before Virgin media was created, Virgin Mobile, the UK phone network was established in 1999 by Richard Branson. The other companies that were strongly competing in the cable market were NTL and Telewest that have merged together and acquired Virgin Mobile for £ 962 million in 2006. In 2007 the merged company NTL Telewest had named the whole company Virgin Media.
In 2013, Virgin Media along with other Virgin brands was acquired by Liberty Global which is the world's biggest broadband company, that operates in more than 10 European countries.
Currently, Virgin Media provides services such as phone, broadband internet, and television services over the cable network.
Moreover, Virgin Media's CEO from 2019 and Virgin Media-O2's CEO from 2021 is Lutz Schüler.
Strengths of Virgin media
It is crucial to identify the strengths of Virgin Media as it will help to explain what Virgin Media has to offer to the merger. The key strengths are:
- Implementation of advanced digital technology that makes Virgin Media services more effective and efficient
- Offers multiple services such as phone, broadband, and internet that are essential for consumers.
- High brand recognition.
- Virgin Media has a highly loyal consumer base.
- Virgin Media holds the title of being the biggest cable provider in the UK.
Opportunities of Virgin Media
Virgin Media's opportunities include the following:
- Despite being the number one cable company in the UK, Virgin Media does not take the lead in other services such as internet and mobile phone services. There is an opportunity to invest in those services or collaborate/merge with the leading providers in these types of services.
- Invest in employees, by providing education courses and staff training which should increase consumers' loyalty and lower staff turnover.
- Virgin Media can take advantage of the increased globalisation, and expand to countries outside of Europe, which could assist in increasing profit margins.
Threats of Virgin Media
On the other hand, external threats to Virgin Media include:
- Technological innovations from competitors can be one of Virgin Media's threats. By doing this, competitors can lower the costs of production and therefore prices, which may tempt customers to switch from Virgin Media to a competitor.
- New entrants in the market can also be one of the threats for Virgin Media.
- Changing consumers' tastes means that Virgin Media may have pressure to come up with new innovations to fit consumers' demands.
Weaknesses of Virgin Media
Virgin Media's weaknesses are things that the company should improve on. We can also think about how the merger with O2 may help the company turn those weaknesses into strengths. They include:
- Virgin Media has come from the NTL and Telewest merger. These two companies have significantly different company cultures, which may have caused some disturbances in setting company policy and organisational culture, which could have had some impact on the overall consumer experience.
- To lower the costs of services, Virgin media has been outsourcing some of the customer service teams. This has resulted in staff redundancies, which have impacted staff loyalty and increased staff turnover, which brought additional costs to the company.
About O2
O2 was founded in 1985 in London and was acquired by Spanish telecommunication company Telefónica in 2005. Mark Evans is the current CEO of O2. Moreover, O2 is a leading mobile communications company in the UK, as it has over 36.2 million customers across its operations. O2 runs various networks from 2G all the way to 5G. In addition to owning over 450 retail stores and O2 Academy venues, the O2 is also the English rugby team's main sponsor.
Strengths of O2
- O2 has reliable suppliers that help the company minimise issues that are related to the supply chain.
- O2 invests in staff training programs, which assists them in having a highly skilled workforce and attracting new talent to the company.
- The O2 has a high level of consumer satisfaction which partially comes from investing in staff training and development.
- O2 has been performing well in new markets and expansions have assisted the company in generating more revenue.
Weaknesses of O2
- Even though O2 has been performing well in terms of sales, the company has not been performing well in terms of marketing. This gives an opportunity for competitors to persuade consumers to switch service providers through promotional campaigns, for instance.
- O2 falls behind with innovation compared to industry leaders.
Opportunities of O2
- Expanding by entering markets in the new countries.
- Investing more in research and development and collaborating with companies that have a high level of innovation.
Threats of O2
- The competitors including Vodafone, Three UK and EE can be part of the threats, as consumers can easily switch to those providers.
- New entrants to the mobile market can also be a threat if they offer better deals. O2 consumers may switch to them.
- New innovation developments by competitors, which may lower prices and offer better services can put a risk on O2 in regards to losing its customers.
Virgin Media O2 Merger New Name
Virgin Media-O2 was created in June 2021 through a 50:50 joint venture between Liberty Global and Telefónica, the owners of Virgin Media and O2. The official name of the Virgin Media and O2 merger company is VMED O2 UK Limited. In short, this merger is called by its business's initials which is VMO2.
Virgin Media O2 Merger
The Virgin Media O2 merger is one of the largest broadband, mobile, TV, and home mergers that has ever been encountered. One of the main goals of the merger is to keep up with the new 5G technology and ensure that the majority of customers can use it.
It is important to know that before the merger, Virgin Media was a subsidiary of Liberty Global, whereas O2 was a subsidiary of Telefónica. After the merger, both companies are 50% owned by Liberty Global and 50% by Telefónica.
Virgin Media O2 logo
The Virgin Media and O2 logos have been merged in order to create a Virgin Media-O2 logo. The logo is designed in the shape of the Virgin Media logo and is similar to the shape of the infinity symbol. Virgin Media-O2's logo can be easily recognised by consumers who already know at least one of the two companies involved in the merger.
Looking at the logo design from the marketing point of view, the combination of two logos with no direct changes was influenced by already existing strong brand recognition from both providers Virgin Media and O2. This is one of the reasons why logos were combined instead of developing a new logo for the Virgin Media-O2 merger.
Virgin Media-O2 service product
Virgin Media-O2 has developed a new service product called Volt which involves more benefits than Virgin Media and O2 offers separately. The Volt plan allows customers to use double data on the O2 monthly mobile plan and the fastest broadband from Virgin Media that is available in the area. Additionally, the Volt plan allows consumers to use the O2 WI-FI with no additional costs as well as offers a £ 150 discount on the O2 custom plan.
We will analyze this strategic move of introducing a new service product using SWOT analysis. First, the main objective of this strategy was to offer consumers the convenience of being able to use the services of both providers with one contract and to get extras such as faster internet or more data, which are the main strengths of this service product.
In addition to the merger's benefits for consumers using the Virgin Media-O2 services, Virgin Media customers can now use the O2 priority rewards scheme app, previously only available to O2 customers.
Virgin Media-O2 analysis
As we have seen in the previous sections, both companies including O2 and Virgin Media have strengths and opportunities that can be beneficial for the merger to thrive, as well as weaknesses and threats that the merger may be able to overcome. Now we shall use SWOT analysis to examine Virgin Media-O2 in great detail.
Strengths of Virgin Media-O2
- Innovation is one of the biggest strengths of this merger. This was one of the key strengths of Virgin Media. Even though O2 was not as innovative as Virgin Media, the combined efforts have resulted in releasing a highly innovative product called Volt.
- The merger offers consumers a service product that is called Volt. This service product includes Virgin Media and O2 services combined for a lower price in comparison to if those two services were sold separately.
- Although the merger was only created in June 2021 it has already shown successful financial results such as a 38,500+ increase in fixed customer base and a 1% increase in revenue in Q3. Virgin Media and O2 have been market leaders in the cable and mobile services markets. Combined strengths have resulted in Virgin Media-O2 being a market leader in telecommunication operations.
- Brand recognition is one of the strengths of this merger, as the individual companies involved in the merger Virgin Media and O2 were already well-known to consumers.
Weaknesses of Virgin Media-O2
- One of the weak points of this merger is the expensive and lengthy contract of the Volt service, even though using the O2 and Virgin Media services separately would be more expensive. The two combined services result in a price that may be high for some consumers, especially when there is a minimum commitment of an 18 months contract.
Opportunities of Virgin Media-O2
- The expansion would be one of the opportunities that Virgin Media-O2 can take. Especially when expanding to new countries, more customers may be acquired this way.
- Invest more in research and development and increase Virgin Media-O2's innovations.
- Develop more service products that would be in demand for consumers.
Threats of Virgin Media-O2
- The other competitors may try to copy the Virgin media-O2 merger and introduce other mergers that will be in the same market as Virgin media-O2.
- Changing consumer tastes is one of the threats. Although currently, Virgin Media-O2 services are highly in demand, the company cannot predict the future if consumers' tastes will stay similar.
Virgin Media-O2 investor relations
In order to fully understand how Virgin Media-O2 engages in investor relations, let's define the meaning of investor relations first.
Investor relations is the type of strategic management that is aimed at strengthening communication between the company and the financial community in order to attract investment.
Key functions of investor relations are sharing financial information, communicating with stakeholders, and marketing.
The way Virgin Media-O2 (VMO2) maintains positive relations with investors is by publishing financial results on its website for each quarter. These financial results are organised into key categories such as:
Fixed-line customers
This category involves consumers that use a minimum of one broadband service offered by VMO2 which can include broadband, TV or home phone services. These statistics exclude any mobile services used.
Total mobile connections
In summary, the merger between Virgin Media and O2 was a successful strategy from the perspective of both companies. The merger capitalised on the strengths of the merged companies, as Virgin Media's innovation edge enabled the merger to be very innovative and develop a service product called 'Volt'.
In addition, Virgin Media O2 capitalised on O2's strengths and provided a leading mobile network for its customers. As the merger has been developed by combining two well-known companies, this has resulted in great brand recognition and customer loyalty.
Overall, the strategy of combining two companies by offering both mobile and broadband services as a single company is a great move. This way O2 customers are likely to use Virgin Media and vice versa, as it is cheaper to use both services than to use each separately. In this way, Virgin Media-O2 will be able to generate higher revenues and compete against other providers who only offer one of the two services.
These statistics include the number of active sim cards within Virgin Media and the O2 mobile network.
In the analysis of financial performance, the statement of "Fixed-line consumers" and "Total mobile connections" shows the potential profits of the company that can be generated from these segments. The sections "Total adjusted revenue" and "Transaction adjusted EBITDA" show the revenue and adjust it by deducting expenses and any costs that have been incurred.
Total adjusted revenue
Accounting adjustments are used to accurately represent revenue in regard to the company's operations.
Transaction Adjusted EBITDA
This refers to a measure of profitability in regards to earning less interest, taxes, depreciation and amortisation.
This financial analysis is crucial for disclosure by the company, as it shows the profits and overall financial health of the company and can therefore strongly influence investors' investment decisions.
Additionally, Virgin Media-O2 provides links to Liberty Global's and Telefonica's websites that contain investor relations materials, including news, events, and other important information.
The Liberty Global website has a section titled 'Sustainability', which shows investors how the 5G network is responsible and sustainable in terms of communities and the environment.
This type of information, in addition to financial reports, keeps investors engaged as well as assists to predict companies' future performance based on news, events etc.
Virgin Media-O2 clearly spotted the opportunity to combine services. Getting existing customers to use both services rather than just one. This will have a positive impact on both the Virgin Media-O2 merger and on both companies individually. In addition, another opportunity for the company is to continue developing innovative features for this service product.
Weaknesses and threats of this product are that regardless of the benefits that the Volt plan offers, it may be a little bit pricey and lengthy for some consumers. Therefore, competitors may try to copy the idea and attempt to replicate it for a more affordable price.
This name is given to the merger because it clearly highlights the companies involved in the merger. The reason for this is that Virgin Media and O2 are already widely known to consumers. If the company is known to customers, they are likely to recognise it, trust it, and become consumers of it.
Virgin Media O2 Merger - Key takeaways
- In 2021 the biggest £ 31 billion mergers between Virgin Media and O2 occurred.
- Virgin Media-O2 was created through a 50:50 joint venture between Liberty Global and Telefónica via a merger of Virgin Media and O2.
- One of the main goals of the Virgin Media and O2 merger was to keep up with the new 5G technology and encourage consumers to use both services that are provided by Virgin Media and O2.
- Virgin Media was created in 2007 and acquired by Liberty group in 2013.
- Virgin Media's key strengths are innovation, brand recognition, consumer loyalty and being the biggest cable provider in the UK. The main weaknesses are the company's culture and high staff turnover.
- O2 was founded in 1985 and in 2005 it was acquired by Spanish telecommunication company Telefónica.
- O2's biggest strengths are having a reliable supplier base and highly skilled staff which results in high consumer satisfaction and good adaptability to new environments, while its greatest weaknesses are underperformance in marketing and lack of innovation.
- Virgin Media-O2's biggest strengths are innovation, and the ability to offer an optimal service for consumers called 'Volt' that combines both company's services together at a cheaper price, good financial results and high brand recognition. The biggest weaknesses are the lengthy and expensive contract of a Volt service product.
- The Virgin Media-O2 merger's official name and logo combine both companies' elements together so that the merger can be easily recognised by consumers.
- Virgin Media-O2 engages in investor relations by publicly sharing the company's financial reports on the website and providing additional information such as sustainability and reliability.
Sources:
1. VirginmediaO2: Q3 2021 financial results.
2. O2 (Telefónica UK) Linkedin, About, 2021
3. GOV.UK: VMED O2 UK LIMITED
4. Virgin Media: Our history & Liberty Global
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